The Budget Deal: Conservative Catastrophe

Commentary by Pete du Pont

August 20, 1997

There is an old saying: be careful what you wish for, you might get it. I have a feeling that many conservatives are going to be saying this about the balanced budget that now seems likely to finally be achieved in 2002. Rather than having found the Holy Grail, conservatives may quickly come to miss the very deficit they railed against for so many years.

The problem is that ever since the budget became more or less permanently out of balance in the 1930s, conservatives have used the deficit as their main attack on liberalism. In fact it is the growth of government - taxes, spending and regulations - that is, or should be, the real object of conservative concern.

However, explaining why government is too big and why popular spending programs should be cut is hard work. It is simply much easier to point at the deficit and say that is the problem.

The deficit issue resonates with voters in a way that the larger question of the size of government does not. People know that their checkbooks need to be balanced and that as individuals they cannot run deficits year after year. They instinctively agree with Charles Dickens, who wrote: "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

The focus on the deficit as the sole measure of fiscal propriety has carried a heavy cost. It led conservatives to drop tax reduction from their program and implicitly support higher taxes. This follows logically from the focus on the deficit, which is nothing more than the gap between expenditures and revenues. If that is the only thing you are concerned about, then it makes just as much sense to raise taxes as it does to cut spending. Since spending is harder to cut than taxes are to raise, conservatives often became in Newt Gingrich's words, "tax collectors for the welfare state."

In the 1950s, President Dwight Eisenhower fought all efforts to cut taxes in the name of budget balance. Although Eisenhower did achieve the best record of any recent president in holding down deficits, the economy did not particularly benefit. There were three recessions during Eisenhower's two terms and growth was sluggish because he refused to cut the high tax rates remaining from World War II and the Korean War.

The result was that by 1960, voters were receptive to the message of growth from Democrat John F. Kennedy, who promised to get the country moving again. Trained and advised by Keynesian economists, Kennedy was not wedded to a balanced budget. This allowed him the freedom to slash tax rates across the board without worrying about any resulting deficits. Republicans in Congress, of course, denounced the tax cut as fiscally reckless and voted against it en masse.

The irony is that Kennedy was only implementing traditional Republican policies. During the 1920s it was Republicans who pushed for tax cuts while Democrats complained about deficits. But Kennedy knew that high taxes were the main constraint on economic growth, and he understood that faster growth is the ultimate purpose of fiscal policy. And the economy responded exactly as Kennedy hoped, achieving one of the longest periods of prosperity in American history.

Richard Nixon gave us our last balanced federal budget in 1969, but there is no evidence that he benefited politically from it. In part this is because balance was achieved only due to the 10 percent surtax enacted by Lyndon Johnson in 1968. Balance may have been achieved, but taxes as a share of the economy were the highest they had been since World War II.

Now Bill Clinton believes that he will somehow go down in history for balancing the budget. But like Nixon, he is doing so because of higher taxes, not lower spending. Indeed, according my NCPA colleague Bruce Bartlett, federal revenues as a share of GDP are currently at their highest level in the history of the United States.

In the long run, I think balancing the budget will not do any more for Clinton's historical standing than it did for Nixon's. Both will ultimately be judged more for their character flaws than their budgetary accomplishments. Nevertheless, there may be a long-term significance to balancing the budget that will benefit Clinton. That is the rejuvenation of liberalism.

Having in effect conceded that balancing the budget is the sole aim of a conservative fiscal policy, conservatives are now impotent to attack any expansion of government that takes place while the budget is balanced. Thus liberals are now free to spend the additional revenue generated by inflation and a growing economy as they see fit - they may even find conservatives competing with them to spend money on their own programs, such as new highways.